THE SALARIES OF THE 15 HIGHEST-PAID CEOS WOULD HAVE PAID FOR A YEAR’S WORTH OF RAISES FOR 1 MILLION OF AMERICA’S LOWEST-PAID WORKERS: UP THE MINIMUM

When the Clinton Administration proposed raising the minimum wage from the current $5.15 to $5.65 in January 1999 and to $6.15 in 2000, an alarmed National Association of Manufacturers lashed out. How dare anyone suggest that America’s lowest-paid workers deserved a raise?

“Proposing to increase the minimum wage is an obsolete response that no longer works, if it ever did,” thundered Paul Huard, NAM’s senior vice president for policy and communications, in a press release. “While a minimum wage hike will help some workers, it also will arbitrarily freeze many others — particularly minority teenagers — out of their first job.”

If the government really wanted to help low-paid workers, NAM suggested, it should do so by “redirecting part of the regressive and burdensome payroll tax to personal retirement accounts.” To improve the working poor’s standard of living, in other words, we should cut taxes on multibillion-dollar corporations. Funny how it always seems to work out that way.

One of the oldest and most frequently leveled critiques of minimum-wage increases is that because they arbitrarily raise the wages of entry-level workers — and by implication, those immediately above them — they tend to cause inflation. And anything that even remotely hints at inflation, as we know from the Gospel According to Greenspan, is bad. Really bad.

go to the tape

But let’s look at the numbers. A raise in the minimum wage would affect about 10 million workers, according to the Washington-based Economic Policy Institute. Add up the 50-cent-an-hour raise — say 40 hours a week for 50 weeks, or 2,000 hours — and it comes down to $1,000 annually, about what Ron Perelman might drop on dinner for four (with wine) at Le Cirque 2000. Considered another way, it’s $10 billion a year — or roughly the amount of wealth generated when Intel’s stock rises 6 points. In a $6 trillion economy like ours, that’s peanuts.

So, if it’s inflationary and economically hazardous if a man flipping burgers at McDonald’s makes $11,000 over the course of the year, instead of $10,000, what do you call it when a class of workers who are already overpaid gets an annual raise of 20% or more? Shouldn’t NAM and other business groups issue press releases and denounce this pernicious trend? Not when the workers in question are CEOs.

According to Forbes magazine’s most recent executive pay study, chief executives saw their pay go up 23% last year. The median salary of the 800 CEOs of large companies surveyed rose from $1.9 million to $2.3 million.

That’s just the median. Sanford Weill, the top man at Travelers Group, took home about $220 million — up a whopping 234% from $94.1 million in 1996. That’s enough to cover the minimum-wage increase of some 200,000 minimum-wage workers — or about 5% of the total. Add up the salaries of the 15 highest paid CEOs last year, and the tab comes to $1.04 billion — enough to fund a year’s worth of raises for 1 million minimum wagers.

Now, most of Mr. Weill’s compensation came from stock options. And there is a heartening trend to link CEO pay to stock price performance. According to Forbes, only 42% of compensation came from straight salary. But Traveler’s stock rose about 80% last year. For a CEO’s salary to outpace his company’s stock growth rate by a factor of three apparently isn’t inflationary.

Neither is it inflationary when the net worth of a CEO like Bill Gates rises by $22 billion in a year — as it did last year. Mr. Gates’s enrichment is easier to swallow because Microsoft’s shareholders shared in his wealth — his gazillions come from actual stock ownership, not options that were exercised. Any value Mr. Gates added to his own nest egg was also added proportionately to that of the middle manager in Iowa with 100 Mister Softee shares socked away in a 401(k).

But what about companies that underperform? Consider Ray Irani of Occidental Petroleum. Over the past five years, Occidental’s long-suffering shareholders have received an 11% annual return — less than half that of the S&P 500. Mr. Irani, in that period, took home $100 million. Escalating pay for such poor performance is inflationary at best, criminal at worst.

Given the value of sums paid out to CEOs — often apparently without regard to performance — the notion that wage growth for the bottom earners can hurt the economic prospects of those in the middle and at the top is laughable.

In May, InvestmentNews sister publication Crain’s New York Business reported that Manhattan apartment prices rose 20% last year alone — to an average of $531,000. The reason a lawyer earning $150,000 can’t afford to buy a two-bedroom apartment on the Upper West Side has nothing to do with the woman at the dry cleaner down the street who makes $5.15 today instead of $4.75 last year. It has everything to do with the investment banker who lugged home a $400,000 bonus last Christmas, as opposed to just $200,000 the year before.

If anything, the most recent minimum-wage increase — it went to $5.15 in September 1997 from $4.75 — has proven counterinflationary. The Consumer Price Index is up a paltry 1.4% in the last 12 months, and the interest rate on the 30-year bond continues to hover below 6%. In the months since the most recent raise, unemployment has fallen to a 28-year low and 900,000 people have left the welfare rolls. Many of them are finding entry-level jobs.

give them their just deserts

The concept that we should reward those who create value by paying them more — which is gaining currency in the board room — is a sound one. It’s also one that should favor further minimum-wage increases.

A major contributor to today’s Goldilocks economy is productivity. Workers here produce more products, deliver more services and generally get more things done in less time than our counterparts in other countries. That’s partly due to the maturity and efficiency of our service economy. American managers and workers can get their meals delivered, their laundry done, their hotel rooms cleaned and their yards maintained — all by minimum-wage workers and at a relatively low cost. Because such workers add value to our lives, they deserve a raise.

Connecticut — the wealthiest state in the nation, and perhaps the last bastion of patrician Republicanism — has already made a nod to the help. Earlier this year, the state legislature approved an increase in the minimum wage there to $5.65 effective Jan. 1 and to $6.15 in 2000. Last I heard, the ravages of inflation have yet to wreak havoc in Greenwich.

Mr. Gross has written about business and government for the New Republic, the Washington Post and New York magazine. He’s writing a book on the financial markets and politics in the 1990s.